The China of the West: Why Mexico is in the Driver’s Seat

As a consultant, my business is solving other people’s problems, so when the call comes in, I listen.

Sometimes I immediately know if I can help. Sometimes I immediately know that I can’t. And sometimes I have to ponder on it for awhile.

So I got this call this past week from a company that wants to expand into Mexico. For reasons of confidentiality, a sacred oath in corporate site selection, I cannot say more.

But as some of my past blogs have indicated, I have a great interest in Mexico, and not only because I live in neighboring Texas, where I am exposed (and attracted to) a strong Hispanic culture. Here I frequent Tex-Mex restaurants, where I will invariably practice my rudimentary Spanish, usually to the embarrassment of my wife.

(There was a time when I could ask for a beer and the restroom in seven different languages. I think I’m now down to four.)

Winning as a Habit

But aside from my miserable attempts at speaking pigeon Spanish, I continue to find Mexico an intriguing place for corporate investment. The reason is quite simple — it continues to win. And that becomes habit forming.

Coincidentally this past week, I added a tagline to my email signature, which reinforces that point. It comes from Aristotle, a pretty smart fellow even if he did prescribe goat urine as a cure for baldness.

“We are what we repeatedly do. Excellence, therefore, is not an act – but a habit.”

Bear Bryant summed it up similarly: “When you get in the end zone, act like you’ve been there before.”

Well, Mexico has been getting into the end zone a lot lately, and, and could very well be among the world’s 10 biggest economies by the end of this decade as its manufacturing sector is competing very well against the likes of China, India and Brazil. Heck, it’s competing very well against the automotive industry in the southeastern U.S., which should raise some concerns there.

Billions in the Pipeline

Earlier this month, Chrysler CEO Sergio Marchionne said his company will invest $1.249 billion in two Saltillo facilities creating 1,570 jobs.  About $1.085 billion will go toward the construction of a new assembly plant to produce the Ram ProMaster commercial vehicle. An additional $164 million will be invested in a new production line to assemble Tigershark engines at an existing engine plant.

Nissan, which built 683, 520 cars in Mexico last year making it the largest vehicle manufacturer in the country, will open its third plant next month, the $2-billion Aguascalientes No.2. The new factory will turn out an additional 250,000 vehicles.

The No. 2 automaker in the country, General Motors, said in June it would invest $691 million to expand its Mexican operations. The plans include a new factory in Silao in central Mexico to build 8-speed transmissions and an upgrade to an existing factory in San Luis Potosi that will make next-generation transmissions.

Watch for BMW, Hyundai, Toyota and Mercedes-Benz to announce at least $2 billion of deals in the next year or two, in addition to $6 billion in announced plants by Nissan, Honda, Mazda and Volkswagen.

The China of the West

Joseph Langley, a senior analyst with the Michigan-based research firm IHS Automotive, told Reuters that Mexico is fast becoming “the China of the West.” By 2020, Mexico will have the capacity to build one in every four vehicles in North America, up from one in six in 2012, according to IHS.

Last year, Mexico attracted $3.7 billion in announced automotive investments, matching the U.S. total, according to the Center for Automotive Research in Ann Arbor, Michigan.

Since 2000, overall auto industry employment in North America has fallen from 2 million to 1.5 million — partly because of robotics and automation. The march of technology, creating greater productivity, is an overriding reason why our manufacturing sector in the U.S. will not grow by millions of jobs, despite what some so-called experts continue to say. Don’t get me started on that.

But Mexico has actually been adding automotive jobs. And now about 40 percent of all auto industry jobs on the continent are in this nation of 115 million, the second largest economy in Latin America.

Being on the doorstep of the U.S., where most of the product will go, certainly provides for a key advantage, as does lower wages, a strong supply base and a global web of free-trade agreements that actually surpass that of the U.S.

Free Trade Agreements Helped

Indeed, it was Mexico’s free trade agreements that were central to Audi choosing it over certain Southeastern states for a new $1.3 billion assembly plant that will produce 150,000 Q5 sport-utility vehicles a year starting in 2016.

Mexico has 12 free trade agreements with 44 countries, while U.S. has 14 trade deals covering only 20 countries. For the European Union, it means a 10 percent tariff on U.S.-built vehicles, which would cost Audi more than $3,000 per Q5. Europe does not apply a tariff on Mexico-built vehicles.

Audi’s choice of Mexico should have been a wakeup call. Suddenly, the South’s dominant position in offering the auto industry lower wages, less of a tax bite and a more favorable (less-active) union environment, is no longer the slam dunk it once was.

Mexico has proved itself to be an attractive alternative in North America. And at around $2.50 an hour, manufacturing wages in Mexico are about 20 percent cheaper than in China, according to a Bank of America study.

Rumors of More

So it is no surprise of reports, you can rightly call them rumors at this point, that BMW, which operates an assembly plant in upstate South Carolina, and Hyundai, which produces vehicles in Alabama, are snooping around Mexico looking for their next assembly plant. I believe the same could be true for Toyota. (Of course, if these companies were really smart, they would hire Barber Business Advisors to help them find that most optimal location in Mexico.)

Just two days before Audi held its groundbreaking ceremony on May 4 at San Jose Chiapa, Honda announced that it would build a $470 million transmission plant in the central state of Guanajuato, near an $800 million assembly plant that is expected to begin production this coming February.

This automotive building spree in Mexico is not by accident. Things happen for a reason. Mexico is the low-cost place for manufacturing, and because of its close proximity to the U.S., the cost of shipping product will always be far far less than what China, or India or Brazil could ever offer.

Mexico is back in the game. It has long-standing governance problems to be sure. The drug cartel violence is not something to be ignored, but foreign-based manufacturers believe it to be an issued that can handled and mitigated, no doubt with some additional security costs involved.

But Mexico has proved to be a worthy bet. And you are going to see more growth as result.

Have Laptop, Will Travel

It should come as no surprise that I travel on behalf of business clients — be that a company in regard to a site search project or an economic development organization that needs my help. In other words, somebody is paying the freight for what is by definition business travel.

So I find it somewhat odd when I am invited by economic developers to come visit their respective communities but with no representation or afterthought of compensation.

At such times, there is often a certain awkwardness that I feel in suggesting that compensation would be involved. But the truth is that this consulting business of mine really is a business. And lending time and expertise is the basis for that business. You would think that would be obvious, but apparently it is not.

So unless I am on vacation, to which you would never see me, business dictates my travel. That’s just the way it is, the way it has to be if this enterprise is to remain a viable concern.

So if a company is not paying me to be at a particular place at a particular time in regard to a site search, then the only other scenario is that a community has contracted for my services. It maybe something of a more in-depth nature — a SWOT analysis or site certification – or it could be something more short term, such as giving a speech/presentation to stakeholders.

Providing that Outside Voice

It has been my experience that economic developers often do need an outside voice to say what they have essentially been saying, but to which has been largely ignored. There is a strange psychology at work here, a variation of familiarity breeds contempt. Even Jesus referenced the difficulty of being viewed as a prophet from one’s own village.

So I will come to a community armed with a briefcase and laptop and give talks/presentations on how the site selection process works and how communities can go about to better compete for corporate investment. Through it all, there is a single strand to my message – You got to invest in yourself if you are to expect someone else to invest in you.

I will be going to Joplin, Mo., this coming week to tour the region and pass along that message (and more) on behalf of the local economic development organization there. I will tell my audiences (I’ll be speaking to three different stakeholders groups in three different communities) the truth — that the recruitment of industry is always a tough nut to crack, but especially so in this new digital machine age that requires fewer but higher-skilled people.  Business retention and expansion is usually the best bet for job growth in most communities.

So let us hope that my message takes in the Show Me State. No doubt, many of my audience members will be astute business people and will get it. If for some unforeseen reason, however, my presentations are met with glassy-eyed stares, perplexed looks or outright rebellion, then I will probably not report that you. It hasn’t happened yet, but there is always a first time.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

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Speed Dating in the High Desert

TUCSON, Ariz. – Be advised that I am now the Tarantula King.

Mind you, I do not have a deep-seated fear of snakes. I will give poisonous ones a wide berth, but have no problem with picking up and handling the non-venomous varieties. Big hairy spiders, now that is a different story. A phobia does dwell within me concerning the arachnid line of critters.

So for me to even suggest that our jeep-driving desert tour guide place “Rosie” – his seven-year-old pet Tarantula — on my shoulder, well, that represented a huge breakthrough for me. For some peculiar reason, I just wanted a picture of Rosie perched on my person. 

I suspect that the Mexican beer, which we stopped for in order to be well-provisioned for our expedition, provided me with the required courage.

The jeep tour in the Sonoran Desert was my only play time last week during my four days at Industry Week’s Roundtable in the High Desert. I think the good folks at Industry Week, and they are good folks (thank you Adrienne, Jessica, Lauren and Michael for your good work), should consider renaming it “speed dating in the high desert.”

That is because in between presentations from the featured site selection consultants, of which I was one, we had these mini-meetings of 15 minutes in which the economic developers had one-on-one discussions to tell us about their communities. Basically, it was an opportunity for them to give more than an elevator speech. I dutifully took notes and nodded respectfully, and even occasionally asked a question.

By my count, I had seven such meetings on Tuesday morning; 21 meetings on Wednesday; and then another seven on Thursday morning, for a total of 35 meetings over a three-day span. Now if I told you that I remembered everything said in those 35 meetings, I am sure you would believe me, right? Notice that I have not made that claim.

But actually these meetings did serve a worthy purpose. I got to see and spend time with old friends and then make new friends, and there is always a value to that. Ultimately, business is built around people interacting with each other. Establishing relationships greases the wheel and makes that all the more easier.

That does not mean that friends get preferential treatment in a  site selection process. But it does mean that I can place a face with a name and know who to turn to if and when the time comes that a project comes knocking. 

So again, I met with economic developers representing 35 different organizations. The first night was Arizona night, as was appropriate. The consultants – which included long-time friends David Dodd, Alison Benton and Brent Pollina – were extolled the virtues and advantages of Arizona. And it was at that dinner at a Japanese restaurant where I learned that Gilbert, Arizona, was the center of the universe. I did not know this.

Apples Don’t Lie

The apple said it was so. In the goodie bag delivered to my room, there was an apple with a sticker attached to it. The sticker said this: “Need more than an apple a day? Gilbert has over 2 million-square-feet of hospital and clinical research space and world class facilities in stem cell, cardiovascular and oncology sciences, regenerative medicine, medical device equipment and pharmaceuticals.”

So Gilbert wanted me to know that it is a preferred location for science, technology, engineering and math (STEM) related industry growth. I got that, as any place that makes algae for commercial use has to be innovative.

You see, Heliae Development LLC recently began producing nutraceutical and personal care products that uses algae. The company plans to expand production on its 22-acre campus in Gilbert in 2014 to include therapeutics and agriscience products and has partnered with Triton Health and Nutrition, a division of San Diego-based Triton Algae Innovations, to do it.

My new friend, Kelly Patton with the Office of Economic Development with the City of Gilbert, touts her city as the “Algae Capital of the World,” which is hard to forget. But it’s here where the utter wisdom of David Dodd shines through, proving that he is the penultimate consultant. For it was David who suggested that Gilbert bill itself as “Scum of the Earth.” Brilliant.

Certainly all the representatives of all the communities with whom I met have attributes worth considering should the right circumstances dictate. And it is by those circumstances that communities are included or eliminated in a site search based on geography. Sometimes Arizona will work, by virtue of where it sits, and sometimes it will won’t based on a whole lot of factors that include location of customers, suppliers, existing corporate assets and even competitors. And you can say that about every place.

Opening the Ball with Jolt

I gave the first presentation of the conference. Rather than repeating drivel that millions of new manufacturing jobs are in our future, I told the truth, which was no doubt a tough pill to swallow. And the truth is that as we are only in the early stages of a new digital age of technology and continue to become more productive in our manufacturing processes, legions of people will be left out in the cold simply because they will not be needed.

This a mega-trend that’s not just happening in the United States but throughout the developed world. And believe it or not, it’s even happening in China.

To lend balance, I did present the converse side to my argument. As productivity increases, the savings created are passed along to the consumer. If those savings are spent on other stuff, then job creation occurs. Still, I do not believe those job-creating savings derived from greater productivity are supplanting the jobs being destroyed in this digital machine age.

Certainly new technology does create new jobs. Software engineers should be in the catbird seat. But it is currently those lower-skilled jobs that demand essentially robotic, repetitive motion action which are being replaced by automation. It’s happening now and it will only continue to happen more in the future.

The challenge for the economic developers is to build upon an environment where technical knowhow can in essence be manufactured. If you cannot establish a technical brainline baseline from which to operate, then you will not be in a competitive position to win the manufacturing plant of the future. And that plant by its very nature will employ fewer people. But those people are critical as they must be more than technologically adroit, but capable of sophisticated problem solving.

We Do Have an Ace

The good news is that the United States does have some great advantages when compared to the rest of the world. Our demographics are superior to that that of Europe, where fertility rates have plummeted and where an actual shrinking of the marketplace is evolving.

A shale gas revolution pioneered in the U.S. is turning the world on its head and stands to make our country energy independent in just a few years. We are currently the largest energy producing country in the world and will soon begin exporting liquid natural gas.

Our lower energy costs in comparison to the rest of the world (U.S. natural gas prices are $4 per million British thermal units compared to $14 in Britain and almost $17 in Asia.) makes us ripe for direct foreign investment, particularly in manufacturing sectors that use lots of energy such as petrochemical and steel. And no doubt, we will see companies from around the world establishing manufacturing operations here as a result of the energy cost advantages.

The National Association of Manufacturers says the shale boom could add 1 million manufacturing jobs in the country by 2025 if natural gas price increases remain moderate and industry regulation is favorable.

I believe that is a reasonable estimate, but always keep in mind that we lost 6 million manufacturing jobs in the first decade of the 21^st century. Between 2000 and 2011, on average, 17 manufacturers closed up shop every day across the country, according to research from the Information Technology and Innovation Foundation. We got creamed.

Those companies that toughed it through the Great Recession simply learned to survive and compete by using fewer people. That overriding trend will only continue as technology advances with continued productivity strides.

Right now, 9 percent of our nation’s workforce is employed in manufacturing, and not 12 percent as reported by another speaker at the Roundtable conference. If that number were to climb by a single point, I would be most surprised as it would go against the long-term grain of history.

But that didn’t stop our speaker from predicting that millions of manufacturing jobs would be created as a result of our energy boom and that the manufacturing sector would rise to an astonishing 15 percent of our entire workforce. It was a fantastic claim to be sure.

While it is becoming more apparent as to advantages of manufacturing in the U.S. for reasons of energy costs and the desire to shorten supply lines and reduce inventory by making products closer to where they are sold, there are also other reasons. A surge in Chinese wages, higher shipping costs, and a desire to protect intellectual property means that U.S. companies now take a more analytical approach to Asian production.

But know this, of the 550,000 manufacturing jobs created since 2010, a tidy gain to be sure, it represents a fraction of what was lost. Of the jobs gained, only about 50,000 can be attributed to reshoring and that number comes from an advocacy group called the Reshoring Initiative.

I’m not so sure that all the offshoring of work has really made a difference in the large scheme of things. If certain manufacturing jobs hadn’t gone offshore then the same if not greater  number of jobs would have been lost to labor-saving technology instead.

The truth is that we are never going to have the mass employment in manufacturing in this country that we once had, because of the march of machines and the tide of history will not allow it. That is not to say that manufacturing is not of incredible importance to our future as a world power. Manufacturing is actually key to our future and makes for a wonderful career for a young person starting out. You will, in short, be part of an elite group with technical knowledge.

Will more reshoring happen and will an energy boon create new manufacturing jobs?  Yes, absolutely. For economic developers, there will be opportunities. Will there be a tidal wave of millions of new manufacturing jobs to come as a result? Only in your dreams.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

 

 

 

 

 

 

 

 

 

 

 

 

 

Some Hows and Whys on Data Centers

I’m in the problem-solving business.  On the corporate side, that means site selection – finding that optimal place for a company where the risks are reduced and chances for success are greater. There’s much work involved in honing it down to the right spot.

On the economic development side, it means helping a community identify and leverage assets while addressing those shortcomings that can be improved upon to better a local business climate and compete for future corporate investment.

So there you go, that’s what I do.

But for me to help either a company or a community, I have to be well armed with information. Data is the fuel that stokes the fire.

For any corporate client, no matter what the industry type, if I am going to help them, they need to help me. That means they have to confide in me and give me the inside story. I have to know the true drivers of a project in order to add value.

Last week, the CFO of the North American subsidiary of a large Japanese electronics manufacturer told me that the single most important factor in determining their future location for a corporate headquarters was based on “sustainability,” “being eco-friendly” and “green.”

Now that was the company’s choice and preference, and who am I to say that’s wrong? But it is that kind of information that I would certainly have to know if I were to provide good service. This was part of their corporate culture.

That Last Question

Also last week, I found myself on a panel discussion concerning the siting of data centers. Being that I was attending the Texas Data Center Summit, this was a logical discussion to have.

I shared the stage with four other people – all of whom were data center industry executives and experts, to which I do not consider myself. However, as the only site selection consultant, I was intent on not being intimidated or embarrassed, even if the panelists broke out into some alien, techno-speak that would leave me baffled.

So everything was going fine until the very last question came around, and we were all supposed to answer it. I’m paraphrasing, but the question was something like this — “With today’s modern data center, is water any longer an important factor?”

As we had been placed at the speakers’ table in alphabetical order, I was on deck, the first person to answer. I thought about the question for a moment. I knew that historically that cooling was an important issue for data centers, but I also knew the technology was rapidly changing, which could make that all moot.

I folded my hands on the table in front me and leaned forward into the microphone. “Probably,” I said, trying to invoke my best consultantese tone. I then leaned back in my chair and said nothing else.

There was some chuckling around the room, but I was subsequently relieved when the four other panelists confirmed my ever-brief answer. They went into great micro-technical terms as to why water remained a huge issue. I didn’t care as I felt vindicated.

But there are other factors involved in site selection for data centers, which I could have elaborated on should the event organizers have excused the true operational experts and allowed me to hog the microphone. But that didn’t happen and it was probably for the best.

Other Factors

But being that I own, operate and hog this blog, I will now share those other factors in determining a best location for a data center that I didn’t get to talk about. And just because the other panelists were operational experts does not mean they were experts on site selection, which is my core focus.

Generally, I do not advocate that companies dwell solely on or accentuate the importance of incentives as driving factor for site determination. That also holds true for data centers but to a somewhat lesser degree. Here tax considerations can hold more prominence.

If local and state governments will abate sales and property taxes, either in full or in part, on what are typically very large capital investments, well, that is certainly something to be considered.

Please understand that I’m no homer for Texas, although I like living here very much. As a site selection consultant, I cannot be a homer for any place. My job is to take a company to the best place it needs to be, which I say and actually believe can be from Maine to California (yes, even California) and from Canada to Mexico.

Texas, which has been a preferred location for data centers, just upped the ante with a new state law that took effect on Sept. 1. The new law now exempts sales tax on – and I am using a very technical term here — the “innards” of a data center. That would include the electrical and cooling systems, hardware, all data storage devices, peripheral component software – essentially any component parts and fixtures that make a data center work.

To qualify, a company must create 20 new full-time jobs that pay 120 percent of the existing county pay rate (typically not difficult) in a building that is 100,000 square feet or larger. Projects involving a capital investment of $200 million would get a 10-year sales tax exemption, while those with $250 million or greater would qualify for a 15-year exemption.

But aside from the tax abatement enticements, there are other considerations to be weighed in a site selection process. Here are a few:

The Three Rs. Data centers don’t make a huge sucking sound when the switches are flipped, but they do use large amounts of electricity. Any location should be evaluated in terms of the affordable cost of power, which means rates, but let us not also forget reliability and redundancy. Future capacity is key to meeting future needs. As with virtually all site selection projects, we are thinking about long-term viability.

Acts of God. Well, I call it acts of God because I am a (very flawed) man of faith. But we’re talking about natural disasters and weather events. The geography of a place has a lot to do with that. I’m not inclined to recommend that a data center be placed near an earthquake fault line, in a flood plain or tornado alley or along a coast line that could be battered by a hurricane. No place is completely safe, but you hedge your bets as downtime for a data center would be catastrophic.

The Backbone Connected to the … There is an old saying in Texas – “God made man and Samuel Colt made them equal.” Well, that’s not completely true, but it is quite true that not all telecommunication infrastructure is created or distributed equally. That necessary optic fiber backbone is not all the same everywhere. Quality and proximity matters as it will affect speed and transmission. The “latency” of a site is about all about transaction time and just how truly connected it is to major existing trunk lines. Carrier type and support will be of great interest.

Tax Rates. Well, we touched on this somewhat already. If you can abate all or a portion of sales and/or property taxes, then you, too, might be able to compete for a data center. But you have to have the other ingredients also in place. Those states that do the best in competing for data center usually have passed legislation specifying the terms for tax abatements.

Workforce. It’s true that most data centers will not employ many people – usually well below 100. But those people who will be employed are typically very well paid and educated. Generally, a data center should go where those people already live. It’s much better to find an existing pool of qualified labor than having to recruit your talent from outside the area.

Quality of Life.  I was hesitant to include this. If by chance a company finds itself in the position where it will have to recruit at least a portion of its workforce from the outside in, then it would be best to be in a place that would cater to their geek side. I’m sorry. That didn’t come out quite right. The point is that most techies will usually not want to live in places that don’t offer at least a semblance of quality of life, which of course we all have different definitions of. We could talk circles around this one. At least have a Starbucks.

Construction Costs. This is typically viewed as a front-end cost that can and does vary by region. If you consider that a data center has a lifespan of 20 years, it may not be a major consideration for the long-term. But those initial upfront costs can matter as they can affect design and scope of a project. Construction costs probably should be looked at in that context.

Oh yes, and let us not forget water, that subject which thankfully did not result in me having a public panic attack. Data centers are designed and/or fitted with extensive plumbing to keep those “innards” (there I go using those technical terms again) cool. Just like electricity, we want affordable rates and reliability for long-term sustainability. As with any site selection project, we are in this for the long haul and any interruption of service or failure to provide simply cannot be an option.

Well, there you have it. My abbreviated take on the data that I would collect and evaluate in siting a data center. Keep in mind that data, or information, is the fuel that keeps the machine running in a site selection project. If a community cannot provide the needed data, it cannot remain in the game. And that’s for a data center project or any other kind of project.

This coming week, I will be attending Industry Week’s Roundtable in the High Desert in Tucson, Ariz., where I will be a featured speaker. Given the choice, I think I would rather speak in a high desert than a low desert. I do hope to both entertain and inform as I hate the sound of a snoring audience.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas.

If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

 

Suicide Bombers with the American Economy

Every morning when the United States Senate convenes, Senate Chaplain Barry Black opens each session with a prayer to guide the senators throughout their day.

Black, a retired Navy rear admiral with 20 years service, has delivered some tough admonitions of late on “the unfortunate dialectic of us versus them.”

“Have mercy upon us, oh God, and save us from the madness,” Black prayed Thursday morning. “We acknowledge our transgressions, our shortcomings, our smugness, our selfishness, and our pride. Create in us clean hearts, oh God, and renew a right spirit within us.”

But here’s the line that really got me to sit up and take note: “Deliver us from the hypocrisy of attempting to sound reasonable while being unreasonable.”

Now that said it all. Preach the word, preacher.

As anyone who follows this blog knows, I write about business trends and how it affects corporate investment (primarily site selection) and economic development (competitiveness for communities.) As a consultant for hire, this is my bailiwick. I tend to shy away from politics, because I don’t want half of you out there hating me.

Government’s profound effect

But the truth is that government – whether it be through laws, policies, regulations, action and/or inaction – has a profound effect and influence upon corporate investment in this country and all over world for that matter.

As part of a site selection process, and it is a process to which I speaking about this coming week at the Texas Data Center Summit in Dallas, government regulation, permitting, taxation and the like, goes a long way in determining if a place is best suited for a particular kind of investment. In a broad brush way, government is often a key component to whether a community has a “business friendly” environment. (I spoke to one real estate developer last week who told me that it took him 6 ½ years to get a piece of property rezoned.)

For years, there has been a faction of the Republican party, a minority to be sure, that believes that government is the enemy, the root cause for much of the nation’s problems. This can be sourced back to President Ronald Reagan who famously said that the federal government was not the solution but the problem.

In fact, Reagan was a master of government and used it in ways to provide solutions. A new book is out by Chris Matthews – Tip and the Gipper: When Politics Worked – reveals that President Reagan was quite deft at the art of compromise with then Democrat House Speaker Tip O’Neil in forging and passing legislation.

Real governing can mean growth

Reagan and O’Neil, stalwarts in their own respective partisan camps, were able to get past blame-game rhetoric, develop a personal relationship, and thereby find ways to accommodate, if not partially, the other side to make government function.

And it’s my belief that their collaborative effort provided for stability and economic prosperity. In short, the business community responded favorably by investing. Fifty-five months after the recession started in July 1981, the Reagan recovery had created 7.8 million more jobs than when the recession started, and real per capita gross domestic product was up by $3,091.

Fifty-five months after the recession that began in December 2007, there were 4 million fewer Americans working than when the recession started, and real per capita GDP was down $803. That would indicate, at least to me, that Corporate America does not have great confidence in the current environment in terms of capital investment and job creation. The Progressive Policy Institute estimated companies have delayed spending by as much as $2.2 trillion since 2008.

The cards dealt us

Today we have an intellectual if not professorial president who has not displayed the schmoozing skills of a Reagan or a Bill Clinton and who only fairly recently began inviting Republican senators to the White House for dinner.

Pair that with the fact that you have a modern-day know-nothing wing of the Republican party, mostly House members, who detest this president and will not concede that he is in office legitimately. They have proved that they will do virtually anything to thwart any and all policies coming from this administration. If Jesus Christ were to return and step foot on the White House grounds, they would deny it.

This Tea Party faction took office not to govern, but to destroy. And it is through their efforts that they have hi-jacked what I consider and venerate as the once Grand Old Party, the party of Lincoln and Teddy Roosevelt.

This may come as a hard blow to certain people – particularly those left and right who want to hate and demonize the other side — but I will say it nonetheless: I can actually respect the tenants of both liberalism (now re-termed as “progressive”) and conservatism. I find neither particularly threatening if and when practiced by reasonable, thoughtful people who understand that government is the art of compromise.

Which is why I have every intention of reading Matthew’s Tip and the Gipper.

Business askance with GOP?

Be aware that the current shutdown is costing the U.S. economy $300 million a day, according to IHS, a global market research firm. And it may signal a shift of sorts, a reconfiguration and a shifting of power. Judging from the comments I hear from business leaders, they are rethinking whether the Republican party is the party of business.

From the austerity imposed by the sequestration to the refusal to reform immigration laws to the shutdown and now another debt ceiling showdown, when the U.S. borrowing authority expires on Oct. 17, let’s just say the GOP’s actions have put a strain on its relationship with certain previously supportive CEOs.

For years, business people have been asking for at least a modicum of stability so as to make prudent business decisions on investment. Washington has been offering anything but that. And increasingly, the GOP is taking the heat.

Get over it, it’s the law

Look, Obamacare is law. It passed both houses of Congress. It was signed by the president. It was upheld by a conservative Supreme Court. Now it matters not if you like it or not (I’m personally taking a wait-and-see mode), it is the law of the land.

If Congress in its wisdom (now that is an oxymoron) wants to amend the law by passing a new law, that’s one thing. Have at it, boys and girls. But shutting down the government because a minority faction of legislators do not want a law enacted, well, that’s a whole different matter. You don’t hold the government hostage for such a lame-brained reason. That’s not the way government was designed to work.

Be clear that there is no exit strategy at work here. There never was. Was this Tea Bag minority so delusional as to really believe that the president would just keel over and dismantle, in whole or in part, the hallmark of his administration?

Again, Obamacare may prove to be good or bad (keep in mind that even the most conservative retirees do love their Medicare), but presidents going back to Teddy Roosevelt have been talking about a national healthcare system that would be accessible and affordable to all. It boils down to a philosophical belief on whether health care is a right. That concept is not currently embraced by the Republican Party, which means they’re on the wrong side of history on this.

Lunacy at work

So in a poorly-hatched scheme to somehow derail Obamacare, they shut down the government and what is even worse, flirt with the prospect of allowing the U.S. government to default on its debt. Folks, that’s not conservatism. That’s just damn lunacy. You don’t spit on Superman’s cape and you don’t mess around with the faith and credit of the United States government, which absolutely must pay its bills.

If a default were to happen, the consequences to the economy could be catastrophic. The Treasury Department warned Thursday that a failure to raise the debt ceiling could lead to a financial crisis and recession even more damaging than the financial crisis of 2008.

A failure of the U.S. to pay its obligations if the debt limit is not raised “would be unprecedented and has the potential to be catastrophic,” Treasury said in a brief report intended for members of Congress and also released publicly by the agency.
“Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse,” the report said.

Is that what you want, Ted? Is that your end game?

Grownups must take control

The only reason why I am deviating into politics in this blog is because too much is at stake in terms of not just my business as a consultant for industry and economic development groups, but for all business. Folks, this is important stuff.

Now it’s true that we have had shutdowns of the federal government in the past, 17 to be exact. Wall Street, more so than the business community, views Congress as a bunch of idiots but who will at the end of the day figure things out and do the safe thing.

But this Tea Party minority, which has undue sway in the Republican Party, is a different crew. We’ve never had a group quite like this before — suicide bombers with the American economy.

Look, the GOP already has a history of putting off immigrants, young people, minorities, suburban women. And now they want to alienate the business community? No, the grownups have to take control and wrench the party back from the influence of these waacko birds.

This isn’t just politics. This is business, and the economy is at stake. As Senate Chaplain Barry Black said in his prayer on Thursday, “save us from the madness.” Preach it, preacher.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas.

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